IT stocks lead markets lower

Tue, 19 Oct 09:30 am

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Led by selling in stocks from the IT and FMCG sectors, the Indian markets have opened today's session marginally in the red. Pharma and energy stocks are however trading strong currently. On the broader BSE, almost two stocks are up for every one that is trading in the negative.

The BSE Sensex and NSE Nifty are currently trading with losses of around 30 points (0.1%) and 5 points (0.1%) respectively. Midcap and smallcap stocks are however trading strong, as the BSE Midcap and BSE Smallcap indices are up by around 0.6% and 0.5% respectively. The rupee is trading at 44.48 to the US dollar.

Software stocks have opened the day on a weak note. Leading the pack of losers are stocks like HCL Tech, Infosys, and TCS. That the recovery for the Indian IT sector has started to take wings was seen from the latest quarterly result of Infosys a few days back. Yesterday, the results announced by the midsize IT firm NIIT Tech validated this fact. The company reported 11% QoQ growth in its net sales during the second quarter ended September 2010. For the first half (1HFY11), sales were up 39% YoY. The company's growth during the quarter was led by good performances across all its key business segments and geographies. The company's fresh order intake stood at US$ 60 m during the quarter, a 50% growth over the intake in 1QFY11. Based on segments, while growth in BFSI stood at 11% QoQ, sales from the Travel and Transportation segment grew by a stronger 15%, and those from Retail and Distribution grew by 11% QoQ.

Indian markets, like most of its peers in the developing world, have been at the forefront of receiving a huge liquidity boost provided by the central bankers in the west. Led by the US Federal reserve, these central banks have been releasing loads of cheap money into the global financial system. This money, in search for high returns, its finding its way into emerging market stocks, including India's. Indian stocks, for instance, have already received around US$ 23.5 bn in net FII inflows in the current year till date. And the momentum doesn't seem to be slowing down at all. While market participants here are happy to see these inflows coming in and taking stocks prices higher, we maintain our concerns regarding the short term nature of these inflows and the bubble like situation these are likely to create if things were to continue the way they are going as of now.